Maybe refinancing has given you some breathing room in your budget by lowering your monthly payments, or allowed you to tap into your home equity for renovations. If you’ve seen interest rates drop even further, you might be tempted to go through another one. But is it possible — or even advisable — to refinance your mortgage more than once?
The short answer is yes. While there are technically no limits, how often you can refinance your home depends on why you want to do so, and whether it makes sense for you financially. Refinancing multiple times may come with consequences, financial and otherwise, that should be thoroughly considered before you take the plunge.
Here’s what you need to know about refinancing multiple times:
- Reasons To Consider Refinancing Multiple Times
- How Many Times Can You Refinance a Mortgage?
- How Long Should You Wait Between Refinances?
- How Much Does It Cost To Refinance Multiple Times?
- Is It Bad To Refinance Your Mortgage Multiple Times?
- What To Consider When Refinancing More Than Once
- The Bottom Line: Is Refinancing Multiple Times Right for You?
When you refinance your mortgage, you’re taking out a new home loan to pay off your current one. Many borrowers refinance when their circumstances change, or when doing so will help them reach their financial goals.
A common reason why homeowners refinance their mortgage multiple times is to change the interest rate or loan term. Known as a rate-and-term refinance, this type of mortgage refinance allows homeowners to switch their current mortgage with one that works better for them. For example, a borrower with an adjustable-rate mortgage who wants a more stable payment schedule can switch to a fixed-rate mortgage instead.
Even if you’ve done a rate-and-term refinance before, you can still apply for another refinance to lower your interest rate. If market interest rates drop, you may be able to lock in a new mortgage rate by refinancing and save more on interest over the life of the loan.
Refinancing allows borrowers to change their loan term, which means extending or shortening the timeline of repayment. The most common loan terms are 30 years and 15 years.
Increasing the loan term usually lowers your monthly payments, because the repayment schedule is spread out over a longer period. This could give you more breathing room in your budget if you’re struggling to keep up with payments. At the same time, lengthening your loan term can mean paying more in total interest, since the interest on the loan has more time to grow.
While shortening the loan term may allow you to pay less in overall interest, your monthly payments will likely increase, which makes this move risky if you might run into trouble affording the higher payments.
For conventional mortgages, borrowers are required to pay private mortgage insurance if they put less than 20% down or have less than 20% equity in their home. Once you reach 20% equity, you can typically remove PMI if you request to do so through your lender — though that’s not always the case. Depending on your current loan, sometimes the only way to remove mortgage insurance is to refinance.
Other types of mortgages, such as Federal Housing Administration loans, require mortgage insurance throughout the lifetime of the loan.
Technically, you aren’t limited in how many times you can refinance your home. That being said, lenders may set their own rules in terms of a waiting period between when you closed on your current mortgage and when you can refinance to a new loan. This might limit the number of times you could feasibly refinance. It’s best to contact your lender to check if there are any restrictions on refinancing.
How long you must wait could depend on the type of refinance. For example, many conventional loans have a “seasoning requirement” for cash-out refinances. Due to this requirement, you generally need to wait at least six months after closing on your current mortgage to conduct a cash-out refinance.
Additionally, how long you must wait before refinancing depends on the loan type. For FHA loans, you’ll need to have made at least six payments on the loan, had the mortgage for at least six months, and waited at least 210 days since the closing date. For U.S. Department of Agriculture loans, you must have made at least 12 payments and had the mortgage for 12 months. And Veterans Affairs loans, in general, require a waiting period of 210 days from the first mortgage payment.
Aside from the requirements imposed by lenders, how long you should wait between refinances will depend on your financial goals and whether you’ll be able to recoup the costs. Like your current mortgage, refinances have closing costs, which can rack up quickly if you refinance multiple times.
“Refinancing fees can get quite expensive, so refinancing each time mortgage rates go a small tick lower probably doesn’t make sense,” says Chris Diodato, a chartered financial analyst, chartered market technician, and certified financial planner and the founder of WELLth Financial Planning in Palm Beach Gardens, Florida.
Additionally, your lender may charge a prepayment penalty for paying off your current mortgage ahead of schedule, which will add to your overall costs when refinancing. That’s why it’s a smart idea to crunch the numbers to check whether refinancing makes sense financially.
The more times you refinance a mortgage, the more it will cost you. That’s because you need to pay closing costs each time. Closing costs on a refinance average about $5,000, according to Freddie Mac. These costs are in addition to any prepayment penalties imposed by your current lender. Diodato also recommends looking into whether you need to pay taxes or other local fees on a refinance.
Refinancing to change the terms of your mortgage can come with other costs as well. For example, if you refinance to increase your loan term, then you may end up paying more overall, even if the monthly payments are lower.
If you decide to take out a cash-out refinance, the total amount of interest you’ll pay could go up because your loan amount has increased. Additionally, the cash-out refinance may result in PMI payments if your equity dips below 20%.
Lenders might offer a no-closing-cost refinance, where they recoup the closing costs by offering a higher interest rate or having the fees rolled into the borrower’s loan amount. With this refinancing option, you could end up paying even more than the original closing costs, since you’ll be forking over more interest with a higher rate or charged more total interest on the increased loan amount.
Whether it’s bad to refinance your mortgage multiple times depends on how it will affect your finances and goals. If you refinance several times — each at lower interest rates — and can easily recoup the costs, then it could be a good idea. However, there are many factors at work.
For example, if you’re refinancing to a shorter loan term, then you’ll need to account for the larger monthly payments. Not doing so means you could stretch your budget too thin and risk falling behind on payments.
Another factor to consider, especially if you’re doing a cash-out refinance, is the size of your new mortgage. When you take on a bigger loan, your debt-to-income ratio will increase. Lenders use DTI to determine whether you’re able to make loan payments on time. If your DTI increases too much, then you might not be eligible for other loans or future refinances.
David Bizé, a certified financial planner and independent financial advisor at First Allied Securities in Oklahoma City, recommends thinking about whether you can recoup the closing costs if you’re refinancing to lower your interest rate. In other words, you want to save more than what you’ll pay in fees for a refinance to be worth it.
“If you’re just going to break even on your refinance, it can be a lot of hassle for no savings,” Bizé says.
He suggests calculating the break-even point on the refinance before making a decision. The break-even point is the number of months you’ll need to live in your home to recoup the costs of refinancing. To save money, you’ll ideally remain in the home for longer.
To calculate the break-even point on a refinance, take the closing costs and divide the total by your monthly savings from your new mortgage payments. For example, if your closing costs are $5,000 and you’ll save $200 per month with a refinance, it will take you 25 months — a little over two years — to break even. For a refinance to be worth it, you’ll need to remain in your home for at least this amount of time. The more often you refinance, the more these closing costs will stack up, and the longer you’ll have to stay in the same home to recoup the money.
Refinancing your mortgage can affect your credit score for a couple of reasons.
Firstly, every time you apply for refinancing, a hard inquiry may show up on your credit report when lenders pull your credit. Hard inquiries stay on your report for up to two years, and each one could drop your credit score by up to five points.
Additionally, refinancing means that the account for your current home loan will be closed. If you’ve had the same mortgage for many years, then the average age of your credit accounts will likely decrease — and negatively affect your score.
Refinancing is a big financial move that shouldn’t be taken lightly. Here are some factors to consider when you’re figuring out if it makes sense to refinance a mortgage multiple times:
- Your goals: Why do you want to refinance your home? Is it to help you save money or stay on top of your monthly payments? Do you plan on investing the money from a cash-out refinance to increase the value of your home?
- Cost and fees: Refinancing comes with fees, so make sure that you’re able to afford the costs. You’ll also want to ensure that you can recoup those costs and eventually save money.
- Your credit score: Your credit score will take a hit when a hard inquiry shows up on your credit report. Also, you’ll likely get a better interest rate if you have a good credit score, so it’s smart to try boosting your score before applying for a refinance.
- Refinance requirements: The requirements for a refinance generally include a minimum credit score, a maximum DTI, a minimum level of equity in the home, and a waiting period between refinances for certain loans.
- Break-even point: If you plan on moving soon, then your refinance might end up costing you more than you save.
- Prepayment penalties: If your lender charges prepayment penalties, make sure to run the numbers and check whether it’s worth refinancing. You could also negotiate with your lender to see if any penalties can be waived.
While it’s possible to refinance multiple times, how often you can refinance your home will depend on your financial situation. It’s crucial to make sure that refinancing will pay off in the long run. Be aware of the requirements to refinance, the impact it can have on your monthly payments and credit score, and how much refinancing will cost. As long as you understand the different pros and cons of your decision, you can make refinancing multiple times a strategic financial move that ultimately works for you.